Advantages and Disadvantages of International Trade

With the advent of globalization and technology, shipping of goods, and selling a service anywhere in the world has become very easy. This has increased competition in the international marketplace. Consequently, international trade has gained momentum with companies looking for more profits. So, let us see if it is as successful a venture as it claims.

WHAT IS INTERNATIONAL TRADE?

International trade means the exchange of goods, services, or capital between two or more countries. There is an export and import of goods and services. Export in international trade means selling of goods or services produced in one country to another country. An import in international trade means buying goods or services by one country that was produced by another country. In several countries, international trade impacts and constitutes a share of the gross domestic product (GDP). It allows countries to expand their trade markets which would not have been possible or available domestically. This means that it creates competitive pricing with more competition. 

According to the World Trade Organisation, the value of world merchandise exports was estimated to be about US$ 19.48 trillion in 2018. So, international trade is important for the rise of a global economy.

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Advantages and Disadvantages of International Trade

ADVANTAGES OF INTERNATIONAL TRADE

Important for Globalization

Globalization is the interdependence of countries with an increase of trade around the world. It is the development of closer economic, cultural, and political relations among all countries brought about through cross-border trade in goods and services. International trade is extremely important to maintain the continuity of globalization. Without international trade, countries are limited to only goods and services with their own boundaries. Therefore, it gives an opportunity for countries to be exposed to goods and services not available in their countries. 

Increase in Opportunity

International trade in goods and services across countries has seen an increase in choices as well as opportunities. With the advent of technology, everything and anything is possible. Foreign goods and services are easily available in the local markets without any compromise on the quality or price of these goods and services. It allows companies and businesses to expand in unexplored markets and unchartered areas. As a result, there is an increase in the company’s profits. 

Diplomacy

International trade essentially means that countries have to harmoniously trade together. In other words, this is a great tool to avoid conflicts among the trading countries. It promotes diplomacy by fostering engagement and stability between these two countries. There is an exchange of ideas and culture among these countries as well. As a result, it creates international cooperation and understanding across nations. For example, the devastating coronavirus pandemic has brought countries closer together with these countries sending emergency medical kits and even medical professionals across countries heavily affected by the virus.

Helps Countries Grow

Another advantage of international trade is that it helps the growth of the company by focusing on increasing the production of goods and services with the available resources. This reduces wastage of resources as countries make optimum use of its natural resources then. For instance, India is the largest exporter of information technology (IT). According to the International Data Corporation, a US-based market research company, the annual growth of India IT and business services market is estimated to be about $14 billion by December 2020. Similarly, it enables a country to import goods that are not available in the home country at a lower cost from another country. 

Increases Efficiency

International trade increases competition among trade owners and producers in a country. Due to this, there are attempts to better the quality of goods without compromising on the pricing. In other words, this increases efficiency in the goods and services available in the market. Additionally, technical knowledge can help set up new industries, especially in developing areas with help from other countries.

DISADVANTAGES OF INTERNATIONAL TRADE

Economic Fluctuations

One of the major disadvantages of international trade is that it can have detrimental effects on the economy. Natural resources of a country is a precious commodity. But excess export of these resources with the aim of only making profits can exhaust these natural resources. Moreover, essential commodities important to a country are exported for better foreign exchange of the goods. As a result, there is a shortage of these goods leading to inflation and economic imbalance in the country. Similarly, importing expensive and luxurious articles may negatively affect the home country. So, this may lead to trade restrictions and strict tariffs and subsidies. 

Developing countries have to constantly depend upon the developed countries for resources and this leads to exploitation. In other words, animosity among countries can eventually even lead to fights and trade wars.

Environmental Degradation

Another drawback of international trade is that it can cause environmental degradation. For example, the natural resources of a home country have to be mined and extracted. This is a strenuous process that has vast ecological consequences. Therefore, excessive export of the said natural resources with the aim of only profits can destroy entire ecosystems. Trade policies certainly have an impact on the planet. Moreover, trade negotiations have witnessed environmental concerns being raised in recent years. So, with the growing urgency to curb climate change, this is a necessary consideration.

Unemployment

International trading encourages and promotes the growth of the economy and more businesses to thrive. But it is also added competition for existing sectors, especially small businesses. It may also move their work to lower-cost locations to cut down on expenses. So, this directly affects workers and increases unemployment.

Advantages and Disadvantages of International Trade

Affects Local Trade

Added competition does not only impact the employment of the workers. It negatively affects the local companies and traders as well. Production of goods and services of a country is an indicator of the growth and economy of that region. Small local companies are unable to compete with giant international trades with competitive pricing. So, they eventually go out business or have to move their production to another location with lower costs.

Risky

There are several other risks with international trade. The economy of a country heavily relies on international trading. Aside from that, there is also a political risk to local governments. As international trade is intrinsically linked to the growth of a country’s economy, there may be chances of interference in domestic affairs. In other words, there will be a downfall of global trade. Apart from this, there are also security risks in the case of the shipping of goods. For instance, several countries like China and Russia are routinely accused by nations of espionage. 

In conclusion, international trade should be promoted with careful consideration across nations. Above all, the aim should always be towards strengthening the country’s economy. 

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Pros and Cons of International Trading

PROS

CONS

Important for Globalization

Economic Fluctuations

Increase in Opportunity

Environmental Degradation

Diplomacy

Unemployment

Helps Countries Grow

Affects Local Trade

Increases Efficiency

Risky